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Wednesday, May 4, 2016

STI Expanding Triangle ?

With FTSE STI 2,800 level broken today, this has invalidated the Elliott Wave 3 previously described (What's Next For STI ?). However, the uptrend since the rebounding at 2,540 still yet to be invalidated. As such, technically, STI still on the uptrend. With wave 3 invalidated, current STI will have to reconsider as wave 2. These wave 2 is not the typical 3-pattern (A,B,C) type but on a possible Expanding Triangle pattern.

Theoretically, this is how an Expanding Triangle looks like with a 5-nodes of A,B,C,D,E then resume the previous trend.

Looking at STI chart after today, 4th May 2016, quite a similar pattern can be observed.

If we take STI 2,906 as the peak of wave 1, then the pulled back after that which stop at 2,800 can be considered node A of the Expanding Triangle. The rebound to 2,960 next can be considered as node B of the Expanding Triangle. The present fall if ending between 2,700 to 2,766 (or could be achieved today already) can be node C of the Expanding Triangle. If such a pattern follows exactly as the theoretical one, the rebound leading to node D will be higher than node B (2,960) which is at least 200 points type. Then the last drop (another more than 200 points type) will complete node E. Node E could end in the region of 2620 - 2680 and after that it will resume the uptrend climb which should be wave 3 already.

The Expanding Triangle pattern can only invalidate should STI breaks the 2,540 level and that also means invalidate the current uptrend pattern.

The big swing in the Expanding Triangle pattern suggests a big uncertainty and volatility in the stock market. If we look at coming events and time frame with June having US Fed FOMC meeting in which most expecting another rate hike and Britain going to poll to decide on staying in or out of Europe, Brexit, this could be possible reason for the formation of the Expanding Triangle. The big uncertainty leading to the 2 mega events in June.

This Expanding Triangle pattern to me is quite rare as I seldom see in Singapore stock market and from the look of it, it going to kill off lot of traders and weak investors during the process. The higher high and lower low all lead to false buy and sell signals for most.

To survive this Expanding Triangle pattern (if it is one), one need to be able to stomach high risk, patience and great holding power.